‘A holding pattern of uncertainty’: Homebuilders walk away from new land deals

With many buyers on the sidelines due to affordability challenges and rising mortgage rates, builders have seen a dramatic slowdown in the pace of sales and have dramatically slowed down construction starts, leaving builders with more land than they plan to build on in the near future. That has brought new land acquisitions by builders in D-FW and throughout the U.S. to a screeching halt over the past few months, with many public builders telling investors during earnings calls that they have walked away from land contracts, paying millions in fees to do so. Arlington-based D.R. Horton, the largest U.S. homebuilder, wrote off $34 million in costs last quarter related to land and home-lot contracts it terminated or expects to terminate. The company saw a 15% year-over-year decrease in sales orders last quarter to 13,582 homes, and its cancellation rate rose to 32% last quarter from 24% in the previous quarter. Green Brick Partners, a Plano-based builder that builds in D-FW and Atlanta through brands including Trophy Signature Homes, Southgate Homes and CB Jeni, significantly slowed down land acquisitions until the market adjusts.

“We have no need to buy land to grow our business and don’t plan to buy much or any land in Q4 2022 or well into 2023,” co-founder and CEO Jim Brickman said in a third-quarter earnings call Nov. “While it is difficult to accurately predict what will happen in the short term, our long-term view on the immense imbalance of housing supply and demand remains intact. “A decade-long underproduction of housing has resulted in a gap of approximately 4 million housing units that will take many years to adjust, if not another decade. Recent and expected future reductions in housing starts are likely to exaggerate the housing shortage.” Green Brick also plans to postpone the next phase of land development for some communities due to the volatility in the market and slower sales, said Jed Dolson, chief operating officer. He said the company expects to pull back land and lot development spending about 45% next year compared with 2022. Arizona-based Taylor Morrison, which owns or controls about 80,000 lots nationwide, is reassessing every deal before closing. It reduced spending on new land 70% year over year in the third quarter to $102 million, its lowest level since 2016. “We have a really good land bank, so we don’t feel the pressure to get any deal to the finish line that doesn’t make sense,” Taylor Morrison chairman and CEO Sheryl Palmer said in a call with investors Oct. 26. “There will be an opportunity to invest at the right time.”